Medicare Primer - Federation of American Scientists

Medicare Primer

Updated May 21, 2020

Congressional Research Service R40425

SUMMARY

Medicare Primer

Medicare is a federal program that pays for covered health care services of qualified beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act to provide health insurance to individuals 65 and older, and has been expanded over the years to include permanently disabled individuals under the age of 65. Medicare, which consists of four parts (A-D), covers hospitalizations, physician services, prescription drugs, skilled nursing facility care, home health visits, and hospice care, among other services. Generally, individuals are eligible for Medicare if they or their spouse worked for at least 40 quarters in Medicare-covered employment, are 65 years old, and are a citizen or permanent resident of the United States. Individuals may also qualify for coverage if they are a younger person who cannot work because they have a medical condition that is expected to last at least one year or result in death, or have end-stage renal disease (permanent kidney failure requiring dialysis or transplant). The program is administered by the Centers for Medicare & Medicaid Services (CMS) within the Department of Health and Human Services (HHS) and by private entities that contract with CMS to provide claims processing, auditing, and quality oversight services.

R40425

May 21, 2020

Patricia A. Davis, Coordinator Specialist in Health Care Financing

Cliff Binder Analyst in Health Care Financing

Jim Hahn Specialist in Health Care Financing

In FY2020, the program is expected to cover approximately 63 million persons (54 million aged and 9 million disabled) at a total cost of about $836 billion. Spending under the program (except for a portion of administrative costs) is considered mandatory spending and is not subject to the annual appropriations process. Services provided under Parts A and B (also referred to as original or traditional Medicare) are generally paid directly by the government on a fee-forservice basis, using different prospective payment systems or fee schedules. Under Parts C and D, private insurers are paid a monthly capitated amount to provide enrollees with required benefits. Medicare is required to pay for all covered services provided to eligible persons, so long as specific criteria are met.

Since 1965, the Medicare program has undergone considerable change. For example, during the 111th Congress, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 and P.L. 111-152) made numerous changes to the Medicare program that modified provider reimbursements, provided incentives to increase the quality and efficiency of care, and enhanced certain Medicare benefits. In the 114th Congress, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10) changed the method for calculating updates to Medicare payment rates to physicians and altered how physicians and other practitioners will be paid in the future.

Suzanne M. Kirchhoff Analyst in Health Care Financing

Paulette C. Morgan Specialist in Health Care Financing

Marco A. Villagrana Analyst in Health Care Financing

Phoenix Voorhies Analyst in Health Care Financing

Projections of future Medicare expenditures and funding indicate that the program will place increasing financial demands on the federal budget and on beneficiaries. For example, the Hospital Insurance (Part A) trust fund is projected to become insolvent in 2026. Additionally, although the Supplementary Medical Insurance (Parts B and D) trust fund is financed in large part through federal general revenues and cannot become insolvent, associated spending growth is expected to put increasing strains on the country's competing spending priorities. As such, Medicare may be a high-priority issue in the current Congress, and Congress may consider a variety of Medicare reform options ranging from further modifications of provider payment mechanisms to redesigning the entire program.

This report provides a general overview of the Medicare program including descriptions of the program's history, eligibility criteria, covered services, provider payment systems, and program administration and financing. A list of commonly used acronyms, as well as information on beneficiary cost sharing, may be found in the appendixes.

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Medicare Primer

Contents

Introduction ..................................................................................................................................... 1 Medicare History ............................................................................................................................. 3 Eligibility and Enrollment ............................................................................................................... 6 Benefits and Payments .................................................................................................................... 8

Part A......................................................................................................................................... 8 Inpatient Hospital Services ................................................................................................. 8 Skilled Nursing Facility Services...................................................................................... 10 Hospice Care ..................................................................................................................... 10

Parts A and B............................................................................................................................11 Home Health Services........................................................................................................11 End-Stage Renal Disease .................................................................................................. 12

Part B....................................................................................................................................... 13 Physicians and Nonphysician Practitioner Services ......................................................... 14 Therapy Services............................................................................................................... 15 Preventive Services ........................................................................................................... 16 Clinical Laboratory and Other Diagnostic Tests ............................................................... 16 Durable Medical Equipment, Prosthetics, Orthotics, and Supplies .................................. 17 Part B Drugs and Biologics............................................................................................... 18 Hospital Outpatient Department Services......................................................................... 19 Ambulatory Surgical Center Services ............................................................................... 20 Ambulance ........................................................................................................................ 20 Rural Health Clinics and Federally Qualified Health Centers .......................................... 21

Part C, Medicare Advantage.................................................................................................... 22 Part D ...................................................................................................................................... 23 Administration............................................................................................................................... 26 Financing ....................................................................................................................................... 29 Part A Financing ...................................................................................................................... 30 Part B Financing...................................................................................................................... 30 Part C Financing...................................................................................................................... 31 Part D Financing ..................................................................................................................... 31 Medicare and Sequestration .................................................................................................... 32 Additional Insurance Coverage ..................................................................................................... 33

Figures

Figure 1. Projected Medicare Benefit Spending by Category, FY2020 .......................................... 2 Figure 2. 2020 Standard Medicare Prescription Drug Benefit ...................................................... 25 Figure 3. Sources of Medicare Revenue, CY2019 ........................................................................ 29

Tables

Table B-1. Part A (Hospitalization Insurance) ............................................................................... 38

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Medicare Primer

Table B-2. Part B (Supplementary Medical Insurance) ................................................................. 39 Table B-3. Part C (Medicare Advantage) ...................................................................................... 39 Table B-4. Part D (Outpatient Prescription Drug Benefit) ............................................................ 40

Appendixes

Appendix A. Abbreviations ........................................................................................................... 35 Appendix B. 2020 Medicare Beneficiary Costs ............................................................................ 38

Contacts

Author Information........................................................................................................................ 41

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Medicare Primer

Introduction

Medicare is a federal program that pays for covered health care services of qualified beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act to provide health insurance to individuals 65 and older, and has been expanded over the years to include permanently disabled individuals under 65. The program is administered by the Centers for Medicare & Medicaid Services (CMS), within the U.S. Department of Health and Human Services (HHS).1

Medicare consists of four distinct parts:

Part A (Hospital Insurance, or HI) covers inpatient hospital services, skilled nursing care, hospice care, and some home health services. The HI trust fund is mainly funded by a dedicated payroll tax of 2.9% of earnings, shared equally between employers and workers. Since 2013, workers with income of more than $200,000 per year for single tax filers (or more than $250,000 for joint tax filers) pay an additional 0.9% on income over those amounts.

Part B (Supplementary Medical Insurance, or SMI) covers physician services, outpatient services, and some home health and preventive services. The SMI trust fund is funded through beneficiary premiums (set at 25% of estimated program costs for the aged) and general revenues (the remaining amount, approximately 75%).

Part C (Medicare Advantage, or MA) is a private plan option for beneficiaries that covers all Parts A and B services, except hospice. Individuals choosing to enroll in Part C must also enroll in Part B. Part C is funded through the HI and SMI trust funds.

Part D covers outpatient prescription drug benefits. Funding is included in the SMI trust fund and is financed through beneficiary premiums, general revenues, and state transfer payments.

Medicare serves approximately one in six Americans and virtually all of the population aged 65 and older.2 In 2020, the program will cover an estimated 63 million persons (54 million aged and 9 million disabled).3 The Congressional Budget Office (CBO)4 estimates that total Medicare spending in FY2020 will be about $836 billion; of this amount, approximately $814 billion will be spent on benefits.5 About 25% of Medicare benefit spending is for hospital inpatient and hospital outpatient services (see Figure 1). CBO also estimates that federal Medicare spending

1 Appendix A provides a list of commonly used abbreviations in this report, including abbreviations for public laws. Throughout this report, the term Secretary refers to the Secretary of the Department of Health and Human Services (HHS). 2 The U.S. Census Bureau estimates the resident population for the United States, regions, states, and Puerto Rico to be about 329 million people as of March 2020. See Census Bureau, "Population," at population.html. 3 HHS, Fiscal Year 2020 Budget in Brief, March 2019, p. 76, at . 4 Congressional Budget Office (CBO), "March 2020 Medicare Baseline," March 19, 2020, at system/files/2020-03/51302-2020-03-medicare.pdf. 5 This estimate of benefit spending includes expected reductions in benefit payments due to sequestration under the Budget Control Act of 2011 (BCA; P.L. 112-25) but does not include projected amounts paid to providers and later recovered. If recoveries are included, total benefit spending in FY2020 is expected to be $826 billion.

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